Stakeholder vs Shareholder

This article describes the two strategy theories according to which decisions are made (stakeholder or shareholder) and ends with observations of the attitudes of my classmates and personal beliefs and conclusions.

As the title announces, this article reflects two types of possible strategies: shareholder or stakeholder. I will start with the definition of a shareholder and a stakeholder, so that we can focus on the same parameters. According to the Business Dictionary, a shareholder is “an individual, group, or organization that owns one or more shares in a company, and in whose name the share certificate is issued”, while a stakeholder is “a person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.”

Where lays the difference between the two? The difference comes from the mind set of manager. If he/she has a shareholder perspective, he/she will focus on profitability at the hour of making a decision. Good examples of this are banks and large corporations that trade on the stock exchange; however one needs to know the way a manager thinks in order to make a decision about whether a strategy is shareholder or stakeholder, making this kind of examples not generalizable. The shareholder perspective focuses on the interests of its main stakeholders at the hour of making a decision. Good examples of this are German and Nordic companies that tend to have the employee as main stakeholder. However, the same observation as before needs to be taken into account, that it cannot be generalized that all German and Nordic companies are stakeholder, as it cannot be generalized that reversely all American and British companies are shareholder.

Same question: where lays the difference between the two? One controversial example: corporate social responsibility. A shareholder company does it because it thinks that this way the interested audiences will consume more of its product, be identifying themselves more with the company. In this case, it acts as a marketing tool addressed to increase profits. On the other hand, a stakeholder company wants to improve the well-being of the society, as it sees it as one of its stakeholders. It believes that the well-being of society has a direct effect on the well-being of the company. With that being said, I am disgusted by CSR aimed at making up for thirst of money. It is the case of a particular bank that would yearly gather funds for South Africa, as a CSR tool. This is giving the person fish and not teaching them how to fish and I am completely against it.

Whether a person takes decisions stakeholder or shareholder depends greatly on one’s inner motivation. There are people that are uniquely motivated by money and cannot understand how stakeholder companies can function (this is the case of my classmates). The necessity for this article came as my fury shone confronted with future shareholder strategists. I said it before, I am writing it now: I am willing to earn less money if I am working in a company where I am happy. With that being said, an important observation needs to be made: having a stakeholder mind set does not mean not being profitable, it is just that decisions are not taken with profitability as main objective.

Conclusion time and more explanation. I am against investment bankers. I haven’t met one so far that I would respect and I am completely disgusted by people whose only motivation can be money (and they are present in all industries). I am disgusted by their greed and their arrogance. I would like to be able to say that there are exceptions everywhere, but I am afraid I haven’t met one so far as far as investment bankers are concerned. PROVE ME WRONG.

P.S. On a different note, the article about Steve Jobs is work in progress that will soon be released.

This blog is not dead!

Ditto! This blog is not dead! In fact, I have been having some very interesting discussions about management theories and I would really like to share them with the world. It's just that they've been discussions and not things that I've written, which makes it more difficult to gather it all.

Nevertheless, I think the Economics of life will change a bit its direction towards the Strategy of life, as I've started to learn I adore Strategy theories and the way everything interrelates. Spoiler alert: my thesys is going to be on how risk management can be a change management strategy. It hurts my brain to read articles and interrelate concepts, but I love it. I'm definitely going to write the summary of my findings here as well, but until then I promise an article on Steve Jobs and emergent strategy.

The Return of Depression Economics and the Crisis of 2008

In what follows, I will be reviewing this book, written by the Nobel awarded economist, Paul Krugman. I will start with a short summary, I will continue with the main raised problems and then with a short reflection of my own on the book.


The main countries that Krugman focuses on are the following: Mexico (along with other Latin American countries), Japan, Thailand, Hong Kong and the USA.

Mexico


The emphasys of the book is on the "Tequila Effect". Just for the record, the name has nothing to do with tequila. What did lead Mexico into the crisis were the following factors:

• the industry had been developed by national companies
• high tariffs
• high barriers for foreign companies

These policies are wrong because a country needs foreign investment to grow, the era of isolated economies has ended a long time ago, now all the countries are interrelated. After a few years, Mexico did set a free trade zone with the USA and Canada. However, this put the country to a disadvantage as its national currency, the "peso" was very strong, making its exports expensive and imports cheap.

Therefore, Mexico didn't manage to grow, although between 1990 and 1993 there were massive capital flows. In 1994, to go out of the crisis, the country decided to devaluate its currency. However, when doing so, two rules need to be obeyed to:

• making the devaluation large enough so that speculators wouldn't go for a bigger decrease and cause it to devaluate even more
• the goverment showing that it is in control of the situation so as to reinstall confidence in the economy

Mexico failed to obey to these two rules and as a consequence entered the crisis. It was saved by the USA, with a loan of 62 billion dollars.

Japan

Japan grew rapidly from 1953 to 1973, as it changed itself from an agricultural country to an industrial one. This was due to a good system of education, a superior form of capitalism, the establishment of keiretsus etc. However, they made the mistake of deregulating the banks more and more, which allowed them to take more risks. This wasn't the reason why Japan entered the crisis. It was because of over-investment, an ageing population and the liquidity trap. Japan's economy wasn't able to respond the growth it experienced in production capacity, it had a gap between the retired and the labour market and finally people weren't willing to spend, even with a null interest rate. In the end, Japan managed to go out of the crisis through its exports.

Thailand

The case of Thailand's crisis is yet another one of confidence and speculation. When it devaluated its currency as a solution to go out of the crisis, it only reduced it by 15%, the final reduction being 50%. As an additional factor, what made the country bankrupt was the fact that its debt was in dollars (same happened to Argentina). What it did was change its exchange system to variable exchange rates and increase the interest rates.

Hong Kong

In 1998, Hong Kong had an expensive currency, as Japan and China were in crisis. Obviously, the speculators thought it would devaluate and acted accordingly. However, Hong Kong made them lose their money on their bet by getting money from the Hong Kong Monetary Authority.

USA

Krugman develops here on two main aspects: the stock exchange boom, caused by the dot com boom and the real estate boom, caused by the rating agencies.

Problems and solutions

In the analysis of the above mentioned countries, two main causes appeared: the confidence loop and the necessity of more regulation. What the first one means is that if there is confidence that an economy is going well, the financial markets will respond positively and this will influence the growth of the economy, which will feed even more the confidence of the stakeholders. However, if there are signs of problems and the confidence disappears, the financial markets will respond and the economy will suffer causing even less confidence for the stakeholders. 

The second cause is the lack of regulation of financial institutions that produced the crisis in the first place. The rating agencies took too much risk and led to the collapse of Lehman Brothers. Although it is difficult, it is essential to regulate whatever could lead to such an effect.

Finally, as Krugman is pro-Keynes, he suggests that more goverment spending is needed, as part of demand-side macroeconomics. That is to say, he advocates for the use of tools like interest rates, taxation and public expenditure. The other side of the coin is supply-side macroeconomics, which advocates for lowering barriers for people to produce goods and services (by adjusting income tax and capital gains tax).

Own reflection

I enjoyed reading this book and I recommend it to anybody who wants to get general Economics knowledge. From a writing point of view, I wasn't too fond of its structure. I think I would have liked the contemporary crisis to be better linked with the reasons for past ones. A comparison of the causes and solutions would have offered the perfect ending to the book. However, the book remains a good read.

Personally, I don't know which is the best solution to solve the crisis. I think that the situation is too complex and the world completely different to have a right answer. I do not doubt the capacity of analysis of these renowned economists, but I wonder their capacity to adapt to the world as it is today. I don't think it's in their natural instinct to use the Internet or communicate through Twitter. These might be trivial examples, but they do show a radical change in the competencies required nowadays. In addition to this, I am sure that these competencies are accompanied by certain expectations and behaviours. Therefore, creative solutions need to be found.

Finally, I promise to give this more thought and come back with another post about the best solutions to the crisis from my point of view. This post was just to review a book that I read and about which I would like to keep a summary.

Tasks for 2011

From now on, at every beginning of a new year, I shall be doing the following:

1. Read the predictions of "The Economist" for the upcoming year.
2. Read the book of the previously awarded Nobel prize winner, section Economics.
3. Read the book of the previously awarded Nobel prize winner, section Literature.
4. Set 2 target destinations to visit.
5. Update recipe book.
6. Update address book for sending postals.

Happy New Year, may all the worst be gone with 2010 and all the best greeted with 2011!!

Capitalism and current trends

In what follows, I will be talking briefly about the history of capitalism (a theoretical basic approach), what it is and finally some current trends.


History


The capitalist system has around 250 years. It has started with the Industrial Revolution in Great Britain, when there was a big step in production, by automatization. The fact that production was greater than consumption and that there was a necessity of raw materials, led to exports of surplus and imports of deficit.

In 1776, Adam Smith saw the need for trade and global markets, in order to keep a certain type of dynamism in production. About a century later (1866), Karl Marx defined the world as an ocean of products, claiming that there already existed a global market. In 1936, John Keynes stated that the capitalist system was in crisis, as there was not enough demand for the production back then. That was because capitalism offered the biggest capacity of production that the world had ever seen.

Characteristics of capitalism


The two main tenets of capitalism are competition and markets. First of all, there is competition between the firms, which determines a certain dance between them. What this implies (as a novelty to prior currents) is that labour is yet another asset that is sold and bought, its price being the salary. Second of all, markets are the main mechanism of capitalism. It is where products are sold and bought, where prices are set and where finally it is decided what to produce and what not to produce; what can be bought will be produced.

The question now pending is why is it important to study capitalism? Well, because most of the countries have this system and the ones that don't, trade with the ones that do have it. In order to study its evolution, I will be developing on trade, finance and production, which are its main drivers.

Trade


As far as trade goes, I will stick to a very basic description of it. I will be developing more on its importance in future posts on my blog. For the moment being, I will describe it as the exchange of goods and services. Somebody buys products cheaply and then sells them at a higher price. It becomes international when there are imports and exports to other countries.

Finance


Financing allows people that have financial resources to borrow to the ones that are in need of them. This way, it is possible to produce and consume. If trading is done without resources, it will be just an economic activity. Finally, it becomes international when the financial source is international (loans, bonds) etc.

Production


Production refers to the process of buying raw materials and turning them into something more complex. However, in order to obtain profits, firms need to go outside their domestic countries. This way, they can take advantage of cheaper labour, transportation costs, legal barriers and others.

Trends


Internationalization


The three drivers of evolution previously described (trade, finance and production) obey to this trend. They become more and more international, which is why I developed a little bit on them.

Cyclical Evolution


The economy has a cyclical evolution. That is to say, it obeys to the following stages: growth, detachment, recession and recovery.

Business concentration


This trend is centered around the idea that there are fewer firms and a lot bigger. This happens through mergers, acquisitions, agreements etc.

On the basis of the previously explained, I will continue with further topics that I will be analysing in more depth.

Keynes vs Friedman

This short article simply posts the contradicting theories of Friedman. I researched this yet again because I read the book of Paul Krugman (summarised here ), who is an advocate of keynesism.


In what way is contradicting Friedman Keynes' theories? His main concept is that the government should not intervene in the markets. He had many theories, but probably this is the one that opened a lot of debate. One of his other more famous policies was the monetary one. Based on the equation (MV=PT), he deduced that an increase in the money supply will result in an increase in prices. He is also famous for this phrase: "inflation is always and everywhere a monetary phenomenon."


Now, I think that inflation is not really a disaster. On the one hand, it helps labour market respond to the economy and on the other hand, it is a sign of progress. 

14th World Business Dialogue

In what follows, I will be talking about what the World Business Dialogue is, about the topic it brings forward this year and finally I uploaded a short video about myself.


What is the World Business Dialogue? Well, they present themselves as "the world's largest student-run business convention. Here, 60 top-class personalities from economy, science and politics enter a discussion about economically and socially relevant, future-oriented topics with 300 international students and just as many executives, notably from German companies." 


Why is it relevant? The website answers this question as well: "The World Business Dialogue's singularity and relevance are supported by a large number of well-known speakers that have participated in past conventions; among these are Josef Ackermann, CEO of Deutsche Bank, Bill Gates, co-founder of Microsoft, and Michael Bloomberg, governing mayor of New York, who made use of the convention as a platform for discussion and exchange and appreciated the student's commitment."


What makes the World Business Dialogue different from the regular conferences aimed at gathering students and employers? From what I´ve seen and read, there are three main things: its relevance in the economy, the international aspect that it promotes and the professionalism with which everything is managed.


As far as its relevance in the economy goes, this year´s topic is "Managing Complexity". I was positively surprised to find out about this. I think that this is a particularly relevant topic, as the world and alongside businesses evolve to more and more complex structures. People passed from interchanging goods to having services outsourced and goods produced in dozens of countries. What this involves is a complex network and a necessity of managers that can deal with it. Therefore, I am highly interested to find out what economists think about this.


I have never considered attending a conference outside the country where I lived/studied/worked. Why? Because I felt that domestic participants were preferred over foreigners and I believed that the conference itself wouldn't really help my development as a professional and thus my career, or at least not more than the local conferences that I already had the chance to attend. However, the World Business Dialogue is different. It aims to the most international participation as possible, offering equal opportunities for the candidates. The networking events are incredible and the speakers that attend the event are highly respectable.


Finally, professionalism. I could feel this from the very beginning, when filling in all the information from the application form. While answering the questions about complexity, I can say that I truly stopped for a moment and started thinking about what it actually means, why it is so relevant and what I can do to prepare myself for complex situations in the future. That is to say, I managed to analyse the concept and form an opinion. This application was another brick to the development of my views. However, I am still interested in polishing this brick, with the World Business Dialogue paint.


With best regards,
The Girl that Wants and Needs a Sponsorship

The Apprentice

After watching The Apprentice for years in different countries and at different ages, I can see a lot of difference in cultures, period of time and myself. This is what this short analysis is all about.

I have been watching this show since I was sixteen, seventeen. First, it's interesting how my analysis has changed throughout these five years and then, it's interesting how the show has changed. When I left to England, I started watching the British version and now I'm back to the American one.

When I first watched it, it was more entertainment, it was about people doing interesting things. When I got to England, it was about me understading how they do things, I think it was more the learning of different techniques, rather than anything else. Now? Now I analyse. I analyse behaviours, people, strategies. That is not to say that it's not entertainment anymore or that I don't find some ideas really innovative. It's just about the way my inner motivation to watch it has changed.

From my perspective, what Donald Trump is looking for has changed a lot, and so have the candidates. If now a more autocratic style is appreciated, in the first seasons, the participative one was more appreciated. This is very interesting. The autocrative style of leadership was the popular one before the participative style and now it seems like the employers and people are going back to the autocrative one. In the last season at least, this phrase has come out quite a lot: "You're the project manager so you tell me what to do". In my opinion, it's not the right approach. You are a team member, you should know what needs to be done as well. This is actually a surprising thing for me, because as China is becoming more and more powerful, i would expect a more delegative style to be popular. It is known that this is how Chinese work, they don't really digest the notion of leadership.

I would also like to talk about the personality that usually wins The Apprentice. Contrary to how a lot of participants are acting, it's never the agressive ones that win. It's the composed candidates, that do their job right, talk when they need to and express their opinions in a very substantiated way. Thus, Brandy in the last season.

As a final observation, I would also like to make a comparison between the same show in the UK and in the US. I prefer the British version. It is more businessy, people know how to behave themselves, it's not a continous circus and the candidates are supposed to make money on a lot smaller budgets, which is definitely harder than with a big one. On the other hand, The Trump Organisation does deal with a lot of money, so maybe Donald Trump is going for the kind of premium products strategy, rather than cost leader product one.

Finally, I would like to conclude with a little reflection about leadership. It's supposed to be focused on two aspects: task and people. The right balance of skills between the two is what makes a leader great. If a person is too much people-focused and is not a serious worker that can offer a direction and a structure, it will never be a good leader. On the other hand, if one is task-oriented, too autonomous, cannot take other people's opinion into account, cannot manage conflicts and cannot influence people, one won't be able to control the team. Where am I? Now, what would be the fun of that, if I'd tell you already?

Qantas, Airbus and Rolls Royce

This short article is my own reflection on the scandal that has Rolls-Royce as the main character. This sudden urge to comment on it came after finding out from here that Qantas begins legal action against the engine manufactuer.


I am going to start with a short synopsis of the event: Qantas had to land one of its Airbus aircrafts after one of the Rolls-Royce engines exploded on a flight. There were no victimes, apart from the reputations of some big companies. To be more precise, the aircraft in question is an A380 and the engine is a Trent 900, one of the best RR engines, if I may add.


First of all, I have no Engineering knowledge, but I am pretty sure that it is very ambitious to assume that it is possible to carry on a "double-decker" (the world's largest passenger airliner) "up to 800 people". I would personally think twice before booking a flight on such an aircraft. With that being said, I am going to restate that I have no Engineering knowledge and that this might be absolutely feasible and safe.


Secondly, the question here is: who is there to blame? Obvious answer: Rolls-Royce. Now, I admit that I might be a little bit biased given my experience with this company, but nevertheless I think they are not the only guilty ones. From my perspective, this is really a chain operation: firstly, Rolls-Royce tests the engines. I know for a fact that the company loses a lot of money by destroying completely the engines that don't meet safety requierements. Afterwards, it comes down to the aircraft to do its own checks and finally to the airline. Or at least, this is how it should be. Then, I understand that Rolls-Royce did not do its job properly in checking the engines, but neither did Airbus nor Qantas. This is not to say that the engine manufacturer is not the main one to blame, it's just that I believe that tougher checks should be made by the other parts of the chain (in this case Airbus and Qantas).


Here you can see a small engine testing example.


Thirdly, my main doubt now is in what way a settlement was not reached. Rolls-Royce is the main responsible and I as far as I read, they took responsibility for what happened. I am really curious to see how this will evolve, there will be later edits in accordance to the press.


Finally, I know that this will affect the image of Rolls-Royce, but I have to plant a question out there: would you prefer your aircraft to be Airbus or Comac? What I can say is that from now on I am checking the engine and the aircraft that I am flying with.

About Physical Inventory

While reasearching techniques related to SCM, I came across this really funny description of Physical Inventory.

So it's the end of the year and the warehouse workers and all the salaried employees are gathered together on a Saturday morning to perform the annual physical inventory. The coffee and donuts help to put color into the faces and cover up the odors enveloping those who had overindulged themselves the night before. People are wandering around not sure what they should be doing, when the boss walks in with stacks of reports, cards, and colored stickers and says "OK here's how this is going to work." By noon it's obvious that less than half the warehouse has been counted and the pizza lunch has left everyone with an enthusiasm deficit. At two o'clock, one by one, people start approaching the boss with the reasons as to why they have to leave. Suddenly the pressure increases on those remaining to get finished. Five o'clock and the last of the counters are abandoning ship, there's an enormous pile of paperwork marked "discrepancies" and several piles of product marked "unknown," "what's this?" and "needs to be identified." The boss surveys the scene and instructs the people in charge of investigating the overwhelming pile of discrepancies to "just make the adjustments, we need to get out of here."

Applied Taylorism

This is a very funny description of taylorism, I came across it whilst studying for Management and I actually think it's a good description of its application.

"Here is the way in which a literal minded industrial reported on a symphony concert. For considerable periods the four oboe players had nothing to do. The number should be reduced and the work spread more evenly over the whole concert, thus eliminating peaks and valleys of activity. All the twelve violins were playing identical notes, this seems unnecessary duplication. The staff of this section should be drastically cut. If a larger volume of sound is required, it could be obtained by means of electronic apparatus. Much effort was absorbed in the playing of demi-semi-quavers; this seems to be an unnecessary refinement. It is recommended that all notes be rounded up to the nearest semi-quaver. If this were done, it would be possible to use trainees and lower grade operatives more extensively.

There seems to be too much repetiton of some musical passages. Scores should be drastically pruned. No useful purpose is served by repeating on the horns something which has already been handled by the strings. It is estimated that if all redundant passages were eliminated the whole concert time of 2 hours could be reduced to 20 minutes and there would be no need for an intermission. In many cases the operators were using one hand for holding the instrument, whereas the introduction of a fixture would have tendered the idle hand available for other work. Also, it was noted that excessive effort was being used occasionally by the players of wind instruments, whereas one compressor could supply adequate air for all instruments under more accurately controlled conditions.

Finally, obsolence of equipment is another matter into which it is suggested further investigation could be made, as it was reported in the programme that the leading violonist's instrument was already several hundred years old. If normal depreciation schedules have been applied, the value of this instrument would have been reduced to zero and purchase of more modern equipment could then have been considered."

Genial!

Laws of project management

This is the way my precious Operations Management textbook was describing Project Management. Enjoy.

1. No major project is ever installed on time, within budget or with the same staff that started it. Yours will not be the first.

2. Projects progress quickly until they become 90% complete, then they remain at 90% complete forever.

3. One advantage of fuzzy project objectives is that they let you avoid the embarrassment of estimating the corresponding costs.

4. When things are going well, something will go wrong. When things just cannot get any worse, they will. When things appear to be going better, you have overlooked something.

5. If the project content is allowed to change freely, the rate of change will exceed the rate of progress.

6. No system is ever completely debugged. Attempts to debug a system inevitably introduce new bugs that are even harder to find.

7. A carelessly planned project will take 3 times longer to complete than expected, a carefully planned project will take only twice as long.

8. Project teams detest progress reporting because it vividly manifests their lack of progress.

(Slack et al, Operations Management, 7th edition)

First day @Damen Shipyard and a little bit about EU competences

8 key competences included in the Framework on key competences of the EU:

-communication in the mother tongue
-communication in a foreign language
-mathematical literacy and basic competences in science&technology
-digital competence
-learning to learn
-interpersonal&civic competences
-entrepreneurship
-cultural expression